Aggregate Demand

• What is the focus of a demand curve in microeconomics?

  Individual product and its price
• What do we refer to demand in a macroeconomic context?

  Aggregate demand
• What does aggregate demand represent?

  Total demand for goods and services
• What is the relationship between aggregate demand and GDP?

  AD is equivalent to GDP
• Who are the major players in the economy that contribute to aggregate demand?

  Households, businesses, government, overseas
• What are the components of aggregate demand (AD)?

  • Consumption (C)
  • Investment (I)
  • Government Spending (G)
  • Net Trade (X-M)
• What are the axes labeled in macroeconomics for aggregate demand?

  Price level and output/GDP
• Why is it important to label the aggregate demand curve as AD?

  To distinguish from microeconomic demand
• What does the point at price level P1 and output Q1 represent?

  Total demand and overall average price
• What is the formula for aggregate demand?

  AD = C + I + G + (X-M)
• What are the methods to measure aggregate demand (AD)?

  • The output method
  • The expenditure method
  • The income method
• Which methods are considered most accurate for measuring AD?

  Expenditure method and output method
• What is the most popular method used by the government to measure AD?

  The output method
• What happens to the AD curve if any component increases (ceteris paribus)?

  AD curve shifts to the right
• What happens to the AD curve if the government spends on new schools?

  AD will increase
• What happens to the AD curve if Tesco invests in new technology?

  AD will shift to the right
• What happens to the AD curve if there is an increase in tourists visiting the UK?

  AD will shift to the right
• What happens to the AD curve if the UK government builds a new motorway?

  AD will shift to the right
• What happens to the AD curve if people in the UK buy clothes from China?

  AD will shift to the left
• What happens to the AD curve if interest rates increase by 5%?

  AD will shift to the left
• What happens to the AD curve if the government announces new austerity measures?

  AD will shift to the left
• Which component of aggregate demand is the largest?

  Consumption
• What percentage of aggregate demand does consumption represent?

  65%
• What was the total GDP of the UK in 2017?

  £2.04 trillion
• What does the term 'invisible export' refer to?

  Tourism as an export
• How do leakages and injections affect the measurement of aggregate demand?

  They influence household income and spending